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If a fiscal cliff deal — now or early next year — does not include an increase in the $16.394 trillion debt limit, there will be another game of brinkmanship that could be more damaging.

The White House has said it will not negotiate around the debt ceiling next year. But Republicans are likely to demand significant spending cuts in exchange for any further increase in the borrowing limit. And unlike with the fiscal cliff, the debt ceiling deadline will be a hard one and going past it could lead to a market collapse, a spike in interest rates and a true financial crisis.

“Going over the fiscal cliff is nothing compared to the debt ceiling,” said Nigel Gault, chief U.S. economist at IHS Global Insight. “Failing to raise the debt ceiling in time would be absolutely disastrous.”

The economy’s relative strength in the face of the cliff — gross domestic product grew 3.1 percent in the third quarter — also underscores what the nation stands to lose if Congress and President Barack Obama do not execute a last-second save and no deal is made in early January.

An economy finally showing signs of life after an extremely anemic recovery could be driven backward once again.

Signals of incipient strength are easy to find. In addition to the relatively strong third-quarter GDP reading, home prices and sales have finally begun to climb again, a factor that tends to make people feel wealthier and drives spending on home-related goods.

The Commerce Department reported Thursday that new homes sales rose 4.4 percent in November from October — the fastest pace since April of 2010. In addition, initial claims for unemployment benefits dropped last week to the lowest level in more than four years.

But there also are signs that the fiscal cliff is already having a negative economic impact.

Business and consumer confidence, which had been on the rise earlier in the year on hopes for a stronger economic recovery, are once again on the decline. The Conference Board’s measure of consumer confidence dropped to 65.1 on Thursday, from 71.5 in November, a bigger decline than analysts expected.

Consumer spending accounts for two-thirds of economic activity, so the psychological impact of going over the cliff — nevermind the actual amount of money removed from people’s paychecks — is not insignificant.

The CBO reported in November that if all elements of the fiscal cliff were to go into effect, economic growth would stall out next year, with the biggest hit coming from the across-the-board increases in tax rates.

According to CBO’s projections, “If all of that fiscal tightening occurs, real (inflation-adjusted) gross domestic product will drop by 0.5 percent in 2013 … reflecting a decline in the first half of the year and renewed growth at a modest pace later in the year.” That contraction of the economy would “cause employment to decline and the unemployment rate to rise to 9.1 percent in the fourth quarter of 2013.”

BS! Going over the cliff will be the best thing for this country. A return to the Clinton tax rates, which liberals have claimed produced the surplus that Bush inherited. Elimination of the Bush tax cut which "only benefited the rich". And a reduction in the of government, again going back to the "financially successful" years of the Clinton administration. If it was so wonderful then, why is everyone against it now?

nice Team Politico... so going over the "fiscal cliff" isn't the immediate catastrophe portrayed by the "liberal loving press". in the long run for a little short term pain, it is the only way to rid ourselves of the bush era tax cuts while getting meaningful defense spending cuts. it would be the most significant debt/deficit reduction proposed by either side.

The legislators in DC could give two sh**ts about the fiscal cliff. All they care about is their salary, benefits and freebies from lobbyists. Time for them to grow up. How about cutting off their salary, health benefits, free vacations etc. until they come up with a plan?

Congress and the president need to look at a measured and paced approach. The economy is still too fragile to withstand significant austerity measures frontloaded on the agreement. Agree to them, but pace them against unemployment.

That is, do the taxes at a $1M threshold and a first slice of corresponding cuts now as an early baseline. From there, agree that when the quarterly trailing unemployment average hits 7%, the next phase of taxes and spending cuts rolls in, say at $800k income levels.

Another tier clicks in at 6% unemployment ($600k), another at 5% ($400k), each with a new group of 1:1 spending cuts.

One might reasonably expect Republicans to drop their Just-Say-No-To-Obama strategy and its goal -- to make him a one-term president even if it meant intentionally hurting our economy and increasing the misery level of all Americans (not wealthy). Their strategy failed, so why continue it? Force of habit? Maybe, but in any case, Republicans so far still seem committed to their Just-Say-No-To-Obama strategy. In which case, we can hardly expect President Obama and our country to do much better during the next four years, or at least as long as misguided voters continue to send Republicans to Capitol Hill in substantial numbers. Maybe Republican irrationality, intransigence, irresponsibility, and indifference to doing the nation's business will come to a head over this current fiscal debate and the one now put on the table by Geithner (as of December 31 we need to raise our debt ceiling). Maybe 2014 will a see a sweeping takeover of the House by Democrats and a supermajority elected in the senate. Maybe then we will see much better years for President Obama and our country. Short of that, things won't be much better (and won't be as good if Republicans make good on their terrorist threat to default on our debts).

This level of dysfunction is criminal...and it is the republican right wing that is most to blame...the middle class has been crushed and we are is seeing the light barely at the end of the tunnel...how dare they hold us all hostage for 1% of the population who would not be hurt by a 3% rise in taxes. The Bush tax cuts which was heralded as irresponsible by both parties barely passed and was supposed to end...never mind it cost us an additional 1.7 trillion dollars....why don't they go after the carried forward interest loophole or expensing stock options or hiding money off shore...why ones my 401k have to be crushed again to save their cronies who have seen an increase o their earnings of 300 times?.....the scary thing is that the right wing labors under the mythology that tax rates have anything to do with economic success in our economy...this mythology has allowed for the erosion of the middle class...the notion that labor is a pesky expense/commodity....and has allowed for our economy to be based on bubbles rather than innovation...scholars agree that the powerful nations have failed because they neglected the foundations of their economy but felt powerful due to military might...sounds familiar....so I am tired of the right wing ranting that the minimum wage is a job killer but a 3% hike in taxes will cause all the wealthy to pack up and leave town....that health benefits are too expensive but healthcare reform is evil...that social security and Medicare are too expensive but increasing wages so people could afford to retire nd be independent is a killer.....we have lost our way

How many people pay much attention to what is happening in DC ... most 'zone out' and say I will try to adjust. You know if they could some people would try to stop their SS contribution in order to spend now and let old age deal with itself. How do you know if personally you will live to retirement? Why not a save and pay as you go for medical? Probably many countries don't even have what we have ... these people would be glad to even have a much reduced SS + Medi ... or a chance to live here after we go over the cliff and our taxes go up. Americans want everything but are going to be sadly surprised.

Obama is not the brightest buck in the till. I doubt that he has a clue what financial strife is! HIs teleprompter isn't smart enough, his teachers seemed to have failed in any structured classes or venues. Obama seems to have majored in BS and running away from adversity or honest occupations!

the sooner we attack the waste, fraud and abuse the better off we will be - I doubt that Boehner has any more skills than Obama - toss him out into the park to play with Obama on the swings and sand box.